It cost me $26,000 to rent a house for my family to live last year in Canberra. So I figure now that I’ve bought a house I can lose $26,000 (give or take) each year before I’ve actually lost out on anything.

I like how a 1.3% drop in a month or 1.6% over a year is “bursting the bubble” according to your tags. Perhaps “mild correction” would be more apt?

So who are these real estate bulls you mention, then? Pretty sure that I’ve never, ever heard anyone say that house prices can never, ever go down. Only that the long-term trend for housing is upwards and that over the long-term market-wide it compares favourably to other traditional investments.

Would anyone consider the drop in prices in 1996 a burst bubble? That was a serious drop. I see current price fluctuations now as equally motivated by local and national economic situation rather than investor sentiment.

Real estate prices go up, they stagnate and they go down. if you look at the long term trend, its onwards and upwards. As with any major investment – it’s time in the market … not timing the market … that will lead to the best result.

It cost me $26,000 to rent a house for my family to live last year in Canberra. So I figure now that I’ve bought a house I can lose $26,000 (give or take) each year before I’ve actually lost out on anything.

That’s not a bad way to look at it. I haven’t lost out yet…but there is still time…

It cost me $26,000 to rent a house for my family to live last year in Canberra. So I figure now that I’ve bought a house I can lose $26,000 (give or take) each year before I’ve actually lost out on anything.

That’s not a bad way to look at it. I haven’t lost out yet…but there is still time…

It’s not a great way to look at it.

If the property cost $26,000 to rent for a year, it’s a reasonable assumption to say that the capital value was probably around $577,777 (this is using a 4.5% income yield after costs).

If the purchaser has saved a 20% deposit AND the stamp duty, they borrowed the remaining $462,222. At 6.0% pa interest that’s $27,733 per year. As the owner rather than tenant, you’ll then need to add on rates and potentially body corporate fees.

If the property price remains flat, it’s a small loss each year ($1,733). If it goes down it’s a bit more.

Housing can build some great saving behaviours, and many value the feeling of ownership rather than being a tenant in which case it’s a worthwhile purchase in spite of the maths.

Like most things though, there’s a bit more to it once you scratch the surface a little. Make your own decision that suits your circumstances, not what you heard around the water cooler.

A couple of suspected reasons are the effects of efficiency dividends and the spectre of change of government. The current and foreseeable federal jobs market in Canberra isn’t doing much for housing demand.

Another possible reason is the sheer ridiculousness of housing affordability at present. Most 20 somethings/young families are probably quite concerned about just how much it would cost them to buy a place.

From a buyer’s point of view, if you can hang out for a while longer it’s in your interest to do so, wait until the trend starts going up again before committing your money. Right now, with the prices going down, every day you don’t buy is saving you money.

From a short-term/current seller’s point of view, get out now capitalise on whatever gains you’ve made, if you wait any longer you risk losing more and more each week.

From a long-term holder/investor’s point of view, swings and round-abouts really – but where do you think it’s going over the next 5-10 years? That is the question!

From an agent’s point of view – if you were already struggling to get listings and closures during the good times, possibly time to look for a new career?

Even so, bear in mind that the RBA started trying to reverse this trend earlier in the year and again recently with interest rate cuts… they’re committed to trying to stimulate the construction sector before the mining sector peaks and starts shrinking…

Another possible reason is that a lot of the houses that have been bought over the past year have been in the newer suburbs and priced below the previous median. Which doesnt mean – necessarily – that house prices have falled, it just means that more cheaper houses have been sold.

The Median House Price in Canberra has been going down for a while now…

In real terms it has been falling for quite a while. If you take the ABS house index for Canberra and the CPI real house prices peaked in the March quarter of 2010 and we’re about 7% down from there. Since the end of 2007 house prices in Canberra have managed to keep up with inflation (just).

The Median House Price in Canberra has been going down for a while now…

In real terms it has been falling for quite a while. If you take the ABS house index for Canberra and the CPI real house prices peaked in the March quarter of 2010 and we’re about 7% down from there. Since the end of 2007 house prices in Canberra have managed to keep up with inflation (just).

Another possible reason is that a lot of the houses that have been bought over the past year have been in the newer suburbs and priced below the previous median. Which doesnt mean – necessarily – that house prices have falled, it just means that more cheaper houses have been sold.

Given there are cutbacks all over the federal bureaucracy and house prices have been in a slow melt nation wide for ~2 years now this reeks of wishful thinking.
Besides that there’s usually an attempt to account for this in indexes.

There’s a big catch here. It’s possible for Canberra house prices to go down significantly, however this won’t happen unless there’s some kind of radical change elsewhere in the system. One example is that Public Service cuts are carried out in a massive way, another is massive world economy crash. The trouble is that if these kinds of things occur, the people that aren’t currently buying are often the ones most likely to bear the brunt of the economic storm.
So long as there’s a massive amount of Canberra households on really big double incomes, house prices won’t drop significantly.

Real estate prices go up, they stagnate and they go down. if you look at the long term trend, its onwards and upwards.

Absent of bubbles you’re probably better off in bonds and equities in real terms. We’ve only had massive *real* gains in the past 15 years.

Clown Killer said :

As with any major investment – it’s time in the market … not timing the market … that will lead to the best result.

This is terrible advice – to buy from 1997 to 2001 or so would be have been one of the best decisions anybody could have made thanks to the government assisted bubble that later pushed prices to the moon. Buying and holding now just makes you the greater fool onto whom boomers can unload their dangerously overpriced IPs.

Another possible reason is that a lot of the houses that have been bought over the past year have been in the newer suburbs and priced below the previous median. Which doesnt mean – necessarily – that house prices have falled, it just means that more cheaper houses have been sold.

The Median House Price in Canberra has been going down for a while now…

In real terms it has been falling for quite a while. If you take the ABS house index for Canberra and the CPI real house prices peaked in the March quarter of 2010 and we’re about 7% down from there. Since the end of 2007 house prices in Canberra have managed to keep up with inflation (just).

Good call.

Rents have also started to soften a bit, well at least the asking prices.

The latest RP Data-Rismark report has found the median house price in Canberra is now $490,000, the second highest in the country behind Sydney.

One could point to a certain party, about to be reinstated, who has been in power over the last ten years and presided over this sad state of affairs.

Not saying that the other mob would have been any better though.

How is it the guvmints fault that the market has been pushing itself along exponentially for the last ten years?

& don’t give me that old chestnut of the stamp duty raising house prices that the real estate people have peen pushing on us through the media.

Howard’s changes to capital gains tax (50% taxable on nominal gains, whereas before it was 100% taxable on CPI deflated gains – in a low inflation environment this is effectively a massive tax cut) combined with existing negative gearing tax arrangements made chasing capital gains as opposed to rental yields extraordinarily tempting for investors and has created a situation that’s almost bound to cause positive feedback as prices fall since once nobody reasonably expects capital gains, the only real support level is the price level at which a new IP is cashflow positive – and that is still a long long way away, though interest rates may help there.
(Negative gearing is bad enough on its own too)

“first home buyers” grants – these pretty much set off the most explosive phase of the bubble starting 2001, and propped it up in 2008/9.

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Howard’s changes to capital gains tax (50% taxable on nominal gains, whereas before it was 100% taxable on CPI deflated gains – in a low inflation environment this is effectively a massive tax cut) combined with existing negative gearing tax arrangements made chasing capital gains as opposed to rental yields extraordinarily tempting for investors and has created a situation that’s almost bound to cause positive feedback as prices fall since once nobody reasonably expects capital gains, the only real support level is the price level at which a new IP is cashflow positive – and that is still a long long way away, though interest rates may help there.
(Negative gearing is bad enough on its own too)

“first home buyers” grants – these pretty much set off the most explosive phase of the bubble starting 2001, and propped it up in 2008/9.

Ahh yes, I get that but that still doesn’t explain how Thumper thinks the local government was responsible except for maybe questionable land release procedures and arrangements with developers, but the increase want just a local thing.

On your post though, I bought my first house in 2001 but the first home owners grant wasn’t the reason we did, we were just ready to buy a house.

While what you say is potentially correct, the average Aussie doesn’t own two houses and has been advantaged/disadvantaged by the massive rise since 2000. We gained on our first house but we were smart about it, we did not over capitalize.

It would be interesting to see the stats on who actually owns the houses to see what the ratio of rentals is in relation to the cost rise over the last 12 years because the “rental housing shortage” that has been around for the last few years seems to disprove the negative gearing theory.

I tend to think the rise has more to do with greed of house owners and real estate agents but that is just the cynical side of me coming out.

[
Howard’s changes to capital gains tax (50% taxable on nominal gains, whereas before it was 100% taxable on CPI deflated gains – in a low inflation environment this is effectively a massive tax cut) combined with existing negative gearing tax arrangements made chasing capital gains as opposed to rental yields extraordinarily tempting for investors and has created a situation that’s almost bound to cause positive feedback as prices fall since once nobody reasonably expects capital gains, the only real support level is the price level at which a new IP is cashflow positive – and that is still a long long way away, though interest rates may help there.
(Negative gearing is bad enough on its own too)

“first home buyers” grants – these pretty much set off the most explosive phase of the bubble starting 2001, and propped it up in 2008/9.

Ahh yes, I get that but that still doesn’t explain how Thumper thinks the local government was responsible except for maybe questionable land release procedures and arrangements with developers, but the increase want just a local thing.

I’m thinking that the local government released land at a slow enough rate to keep the demand high and the prices high. The government won out by collecting more in stamp duty and the developers are rolling in money too.
Its a reason why stamp duty isn’t necessarily a fair tax and why its being phased out, despite the triple rates scare campaign.
If the government wants to get more money into the coffers without stamp duty, they need to release more land (to increase the number of rate payers) or increase rates. One is clearly more popular than the other among voters.